Preparing for the Proposed FinCEN Anti-Money Laundering Rules

At the recently concluded TD Ameritrade Elite LINC Conference I had the opportunity to attend a session on the proposed Financial Crimes Enforcement Network (FinCEN) anti-money laundering (AML) rule. Their mission of FinCEN, a bureau of the United States Treasury Department is to: “safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.”

To date, the proposed rule has not been published in the Federal Register, however the consensus of the presenters, as well as some others I’ve spoken with who are knowledgeable on the topic is that advisors should start preparing for the rule now.

It is expected that the FinCEN rule will require advisors who are, or should be registered with the SEC to establish and implement AML programs within six months of the effective date of the new regulation. The rule would not apply to state registered advisors, however it is likely that some states will follow the SEC’s lead and require their advisors to implement an AML program as well.

Firms that are governed by the rule will be required to establish a written AML program that is risk based, and specific to their firm. Among the requirements will be:

Internal policies, procedures and controls

The designation of an AML compliance officer

An ongoing employee AML training program

An independent audit process (at least annually) to test the plan

The rule will impose new requirements and recordkeeping upon SEC registered firms. For example, firms will be required to submit suspicious activities (Suspicious Activity Reports) just as banks and other financial firms are now required to do. They will also have to keep records related to Currency Transaction Reporting (CTR) and records in support of the travel rule.

Firms will not be able to rely on their custodian’s AML programs. They will be required to establish their own.

How is AML relevant to a financial technology news outlet? The answer is simple: The new paperwork and record keeping requirements of the proposed rule will be significant. It may be possible for advisors to efficiently comply with the regulation without adding additional software, but we anticipate that many advisors will require new systems to efficiently, cost effectively comply with the rule.

Furthermore, while some have suggested that advisors can background check new potential clients (and existing ones) with databases and other sources that are already available to them, our suspicion is that best practices will be to make use of data from third party vendors.

In the coming weeks, we will try to identify vendors and tools that can help readers meet their new potential regulatory responsibilities, but for now, we suggest putting a contingency plan in place to comply with the proposed AML rule if you are an SEC registered advisor.

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Joel P. Bruckenstein, CFP®, is Publisher of the T3 Tech Hub (formerly the T3 newsletter) and the producer of the Technology Tools for Today (T3) Advisor Conference, the only annual technology conference for independent advisors, as well as the Technology Tools for Today (T3) Enterprise Conference.
Bruckenstein is an internationally acclaimed expert on applied technology as it relates to the financial service industry. He is the co-author of three books: Virtual Office Tools for a High Margin Practice, Tools and Techniques of Practice Management, and Technology Tools for Today’s High Margin Practice.
Joel’s monthly technology columns appear in Financial Advisor magazine and Financial Planning magazine. In addition, he compiles the annual technology survey for Financial Planning magazine.
Bruckenstein has for more than twenty years advised financial service firms of all sizes on improving their technologies, processes and workflows. For more information about Joel Bruckenstein and the services his firm offers, please visit www.JoelBruckenstein.com